Insurers, agents, and health carriers doing business in Washington commonly complain that the Office of the Insurance Commissioner (OIC) overstepped its statutory authority in imposing requirements on regulated entities. Occasionally, they challenge the OIC and prevail.

On August 27, 2007, a Spokane County Superior Court judge ruled that the OIC exceeded its authority in issuing a “Technical Assistance Advisory” (TAA) The court ruled the OIC’s advisory was inconsistent with the applicable statute. The OIC often issues TAAs without public notice or comment and without satisfying the rulemaking requirements of the Administrative Procedure Act. Although permitted by statute, TAAs are supposed to be advisory only and not enforceable.

The Associated Industries of the Inland Northwest, the Association of Washington Businesses, and other associations negotiate and contract with health carriers on behalf of their small-employer members. A recent TAA issued by the OIC interfered with these association plans and prompted the court challenge.

A statute requires health carriers to set premium rates for small employers based on “community rating,” which means that a group’s rates are determined largely by the claim experience of all groups. RCW 48.44.023(3). Another statute exempts small employers purchasing health plans through associations from this requirement. RCW 48.44.024(2). The OIC issued a TAA indicating that association rates must be based on the claim experience of the entire association membership and that rating based on the experience of an individual employer is prohibited. The associations felt that this would have the effect of increasing their members’ premiums.

The court ruled that the OIC attempted to impose community rating upon association members despite the exemption in RCW 48.44.024(2). In addition to being contrary to the statute, the court noted that the TAA amounted to a “major policy shift” for the associations, which had negotiated rates based on individual employer medical experience for over 12 years. The court ruled that only the legislature could change the statute and, if needed, the legislature would do so. The OIC formally withdrew the TAA following the court's ruling signaling that it does not intend to appeal.